This is going to be more of a hypothetical post, but it’s something that I really believe will be a reality before long.
No online “empire” has penetrated the average web user’s home like Google, and it only makes sense to look at a online business just as popular to find out who could be the next big player in the ad publishing world – Facebook.
This isn’t all conjecture on my part – there are some real signs that point to Facebook becoming the next big online advertising giant, which I’ll of course explain further…
Facebook is Already an Advertising Machine
For starters, let’s look at the fact that Facebook already is highly driven by its own advertising platform, which takes into account every last detail about you, and tailors the ads you see to those details. Talk about highly targeted advertising.
As an accountant, I like to first dive into the company’s financials – as you can see below, advertising makes up a significant portion of Facebook’s revenue (as of the end of 2011). This data was taken straight from their registration statement for when they went public earlier this year.
Also, this paragraph was taken straight from the same registration statement (see the bold text):
We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.
The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives.
Although you could look at it and say that Facebook needs to diversify, it’s clear that their most powerful weapon is the database of millions of people around the world – data that can be used to make advertisements more effective. No other company (not even Google) has access to this depth of information. It makes sense that Facebook will continue to leverage the power of its ad publishing.
The Next Logical Step: Ads on YOUR Website
Facebook’s ad publishing is obviously a huge source of revenue for the social networking company, however when you stop to think that this is all a result of only page views on Facebook, it almost blows your mind to think about the kind of revenue they would be generating by having their ads on other websites.
It’s Already Happening (to a Limited Extent)
As pointed out by this TechCrunch article, Facebook is already testing ads outside of the Facebook platform. As you can probably guess, they’re testing it with Zynga, a company with whom they have a strong partnership.
And yes, this TechCrunch article refers to Facebook as a potential “AdSense Killer“. I like the sound of that, don’t you?
If you go to Zynga and are logged into your Facebook account, here’s what you might see (these are the ads that I see):
Here’s How I Think it Would Work
I actually think these ads could be the best thing to happen to internet marketers who rely on displaying ads for earnings on their websites. Think about it: You’d have extremely targeted ads with the familiar/friendly Facebook formatting that people aren’t blind to (in the way they might be blind to Google AdSense ads).
Now, Facebook isn’t going to just run wild with this – I’m assuming that you not only would need to be logged into Facebook, but would also need to opt into sharing your information with outside websites (or not opt-out of it). This is obviously the right thing to do from a privacy standpoint, even though it reduces the effectiveness of the ads.
Even if you’re not logged in or you opt-out of sharing information, I see no reason why Facebook couldn’t or wouldn’t create a back-up ad system that bases the ads on the content of the page much like Google does with AdSense. This would be a pretty logical move.
Not only do I think these ads would have a higher click through rate, but I also think they would have a pretty high earnings per click. All you have to do is think about it from an advertiser’s perspective – Facebook is a great place to advertise (just as good or maybe better than Google), so I imagine the earnings would follow. The unknown factor would be how much of the earnings Facebook would be willing to share with its publishers.
It’s important to note that I don’t think Facebook is going to roll this out to the general public anytime soon. They will most likely start with a handful of trusted sites (like Zynga and other sites where they may have partnerships) before they consider allowing other sites to publish ads.
There are a lot of other important questions: How picky will they be with approving ad publisher accounts? Will you need to get approval for each URL that displays ads (similar to Media.net)? No one knows right now, and all of these variables will determine whether or not Facebook can truly become an AdSense-killer.
What Do You Think?
It’s exciting to think about this possibility, especially for those of us who were banned from AdSense. Facebook is in a unique position to really be able to compete with AdSense/Adwords – and if this does eventually happen, there’s no doubt that Google will need to react, to stay competitive. That can only be a good thing for us (hopefully).
Let me know what you think in the comments!